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Hello Sir,
I had a true or false question about the payback period, which it states
” It is a risk-focused approach in the decision making process” – my answer to this would be False, which is wrong apparently but I am not sure how does the payback period actually incorporate risk?
Google also says ”
The payback period can be a valuable tool for analysis when used properly to determine whether a business should undertake a particular investment. However, this method does not take into account several key factors including the time value of money, any risk involved with the investment or financing”Could you please confirm whether this is right?
Thanks in advance!
The statement “It is a risk-focused approach in the decision-making process” is actually true.
The payback period is considered a risk-focused approach because it focuses on minimizing the risk of a project not paying for itself. The shorter the payback period, the less risk there is of the project not being able to recover its initial investment.
This is due to payback period , which is typically more certain and less affected by uncertainty. However, it is important to note that the payback period does not take into account factors such as the time value of money or the specific risks associated with the investment or financing.
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